USD/MXN FORECAST: NEUTRAL
USD/MXN continues to build on its recent bearish momentum coming back into a strong support area between 19.87 and 19.67 where sellers are really going to have to battle it out to build further gains. The pair has been left pretty much at the mercy of the Dollar in recent weeks and that is why it is seeing a strong reversal in price as the USD comes off from recent highs. This dynamic in USD/MXN has been going on for a while and can be pretty evident if you overlap it with the Dollar index chart (DXY).
There is little economic data on the calendar for Mexico next week so I would expect the pair to continue to be driven by flows in the US Dollar. The Fed’s latest meeting on Wednesday was enough to convince traders about undoing some of the risk-off moves from the previous days but the bearish sentiment in the currency has already started at the beginning of the week, causing USD/MXN to pullback over 2%, the biggest move its seen in the last month.
The question now is whether this is just a temporary adjustment or if there is more to this move. If we see a follow-through we could see sellers aiming towards the lower bound of the range (19.68) although it won’t be an easy path, especially looking at the complications the pair has seen around this area over the last three months. If achieved, the next key area is likely to be 19.50 as the pair has been unable to touch this area since March 2020 despite various attempts along the way. A break below may lead to consolidation towards 2020 lows at 18.50.
Alternatively, if the US Dollar is able to regain bullish momentum then USD/MXN is likely to trade back above 20 Pesos per Dollar, with 20.08 likely to be a good test of resistance before heading towards the 76.4% Fibonacci at 20.18.